Applications of Differential Analysis Moscot manufactures high-end sunglasses that it sells in retail shops and online for $310, on average. Assume the following represent manufacturing and other costs.

Variable Costs per Unit		Fixed Costs per Month
Direct materials	$80	Factory overhead	$495,000
Direct labor	50	Selling and administrative	412,500
Factory overhead	35	Total	$907,500
Distribution	10
Total	$175

The variable distribution costs are for transportation to retail partners. Assume the current monthly production and sales volume is 16,500 units. Monthly capacity is 22,000 units. Required Determine the effect of each of the following independent situations on monthly profits. Note: Do not use negative signs with your answers. a. A $50 increase in the unit selling price should result in a 2,200 unit decrease in monthly sales. AnswerIncrease ofDecrease of

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b. A 10% decrease in the unit selling price should result in a 6,600 unit increase in monthly sales. However, because of capacity constraints, the last 1,100 units would be produced during over-time with the direct labor costs increasing by 50%. AnswerIncrease ofDecrease of

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c. A British distributor has proposed to place a special, one-time order for 1,100 units at a reduced price of $250 per unit. The distributor would pay all transportation costs. There would be additional fixed selling and administrative costs of $825. AnswerIncrease ofDecrease of

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d. A Swiss distributor has proposed to place a special, one-time order for 6,600 units at a special price of $250 per unit. The distributor would pay all transportation costs. There would be additional fixed selling and administrative costs of $1,100. Assume overtime production is not possible. AnswerIncrease ofDecrease of

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e. Assume Moscat provides a designer case for each pair of sunglasses that it manufactures. A Chinese manufacturer has offered a one-year contract to supply the cases at a cost of $10 per unit. If Moscat accepts the offer, it will be able to reduce variable manufacturing costs by 5%, reduce fixed costs by $5,500, and rent out some freed-up space for $4,400 per month. AnswerAdvantage of buyingAdvantage of making

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f. The glasses also come with a choice of lens tint. Assume that eliminating that option would reduce variable costs by $5 and eliminate $55,000 in fixed factory overhead. The selling price would likely have to decrease to $290 per unit. AnswerIncrease ofDecrease of

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